The art of customer segmentation

Not all customers are the same. So stop taking a one-size-fits-all approach to your marketing and start segmenting your customers into smaller groups, says Andrew Gerrard of InTouch Marketing

Segmenting a market is sound practice. It enables you to develop a deeper understanding of your customers and discover what makes them tick. When you are communicating a message, it will be more effective if the recipient of the message finds it relevant.

Segmentation is simply a way of arranging your customers into smaller groups according to type. These distinct sub-groups or segments should be characterised by particular attributes. Now you can target specific, relevant marketing messages at each group.

And it's not just about what you say. How you communicate is also vital, and segmentation often requires a carefully structured marketing mix. That's because some customers may prefer the direct approach, such as telephone marketing, while others respond better to a local advertising campaign.

First steps to customer segmentation

Segmentation does not have to be complex. For a small company, it could be about recognising that you have two or three distinct customer types with different needs. My philosophy is to always start with the simple question: Who do we want to talk to? The answer could be simple - customers. Segmentation principles can then add several layers of intelligence, based on key differentials, such as:
• spending patterns
• gender
• where they live
• age
• socio-economic group.

What is important is not surface differences, but those differences that actually affect buying behaviour. What triggers each person to buy? If you run a hairdressing salon, for example, the type of offers you might make to customer groups would certainly differ on gender and age lines. If you own a mail order business, you might be better off analysing buying patterns and split customers into groups according to how much they spend, how often they buy or what products they are most interested in.

Targeted selling

By increasing your understanding about what your customers are buying, you can also maximise opportunities for cross-selling or up-selling. I'm reminded of the builders merchant who sells a tonne of bricks but doesn't cross-sell by selling the sand and cement. By grouping together all the customers who regularly buy certain products, you can target them with relevant offers encouraging them to increase their spend.

Not only is a relevant marketing message more effective as a sales tool, it is also about good customer service. A piece of communication that acknowledges, what you bought and when is much more impactful than a bland message. What's more, if you are a regular customer, a targeted message shows that you are appreciated and valued. Conversely, a general message, which doesn't acknowledge previous purchases, could well make you feel unloved and taken for granted.

Segmenting new prospects

Communication with existing customers is one thing. But how do we go about identifying new prospects and segmenting them? When it comes to finding new business, it is vital to establish whether there is a market for your products and services and to identify the type of people that would make the ideal customers. This could be based on your existing customer profile. Or you may be branching out into a new area and need to identify clearly who you are targeting.
The key is to draw a picture of an individual that represents the type of person you are aiming at. If you take two very different types of prospect, you can see that they will have very different needs, wants, values and opinions. And they will respond quite differently depending on the marketing method you use.

• with time on their hands
• with disposable income
• who have retired or are in semi-retirement
• live in a rural environment

Teenage girls
• living in cities
• with low disposable income
• aspirations to enjoy life to the full

These are certainly extreme examples, but they illustrate how different your segments could be and why it is essential to target messages precisely and not send the same messages to your entire customer base.
As you analyse your own customer base, it soon becomes clear that there are some distinct groups with specific requirements. It's time to divide that customer base up and target each group accordingly. The results could surprise and delight you.


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